Nova Credit introduces the next chapter of underwriting with bank data to better assess risk and serve consumers across the credit spectrum

The traditional credit risk industry is headed into uncertain times. The path forward is influenced by a few macroeconomic and technological trends and introduces risk into mainstream underwriting practices, such as: 

  1. Residual impacts of COVID where consumers used stimulus checks to pay off their debts or have taken advantage of loan payment deferrals

  2. The tremendous rise of the Buy Now Pay Later solution which has seen over a third of American consumers buying a product with this payment method. Despite the rise of adoption, bureaus have still yet to incorporate this payment data into their modeling

  3. A looming recession that introduces an economic environment which has historically deteriorated the effectiveness of traditional credit scores

Additionally, the traditional credit risk industry has unintentionally excluded over 50 million U.S. consumers from credit, simply because they don’t use credit in ways that were defined by the industry over 3 decades ago. 

Watch our product announcement webinar to learn how Nova Credit’s newest product, Cash Atlas™, addresses these challenges by providing credit risk analytics using bank transaction data, or read more below. 

Introducing a Smart & Inclusive Way to Underwrite

Cash Atlas™ is a consumer-permissioned, FCRA consumer report that enables lenders to better serve consumers across the credit spectrum using bank transaction data. Lenders can confidently assess credit risk by instantly leveraging bank transaction data to analyze income, debts, expenses, and assets. 

Using a consumer-permissioning module that can convert up to 80% of consumers, lenders can access bank transaction data through a variety of data aggregators. Nova Credit then categorizes and transforms this data into a set of 1,000 attributes across income, debts, expenses, and assets, that are proven to predict credit risk. Cash Atlas™ also provides report-level and account-level attributes, and can differentiate between individual and joint accounts. 

With Cash Atlas™, lenders can incorporate bank transaction data into their underwriting strategies in a few different ways to better understand consumer’s financial health, including:

  1. Underwriting - establish a second look credit policy for initial declines from bureau reports to approve more prime or near prime applicants

  2. Verifications & Affordability - verify income and assets while more accurately assessing debt-to-income ratios and increase fill rates 2x 

The Potential Business Impact for Financial Institutions

Most importantly, Cash Atlas™ provides an incremental lens on credit risk that is unavailable in traditional credit risk models. By introducing affordability, or capacity to pay, lenders can add a forward-looking prediction on whether or not a consumer has the ability to pay back their debts. Through an analysis of using Cash Atlas in addition to credit scores in comparison with using credit scores alone, and measuring based on default rate (90+ days past due), the results show that Cash Atlas™ provides a lift in bad capture rate across the credit spectrum. 

Bad capture rates improved between 16-20% for subprime and near prime consumers, meaning that using Cash Atlas™ in conjunction with credit scores improved the ability to identify consumers who would default and assigned them to the bottom decile of the population. When measured against the Kolmogorov-Smirnov score (KS), which is a way to measure the percentage of bads and goods captured, Cash Atlas™ in conjunction with a credit score improves KS scores by more than 40% for near subprime and near prime consumers. 

For the credit excluded population, 88% have enough bank data to be scored using Cash Atlas™ attributes. 

Altogether, pairing Cash Atlas™ with credit data shows an opportunity to reduce losses by up to 3-5% while increasing originations by up to 2.5% - 4.5%

Lenders who are interested in this solution can run a retro analysis with Nova Credit to show the impact to their own business, and can also receive a recommended set of attributes and insights to reduce the amount of engineering work required to implement this into their underwriting strategy. 

Watch the full product announcement to learn more about Cash Atlas™ and how you can paint a more complete financial picture of your consumers.